Asian opportunity: despite the opportunities for growth in the region, Canadians remain hesitant participants.

As a trading nation, Canada's economic success depends on strong commercial ties. As mentioned before in this column, however, we aren't always as successful as we ought to be in managing these commercial relationships. Much of our focus remains on the U.S.--the destination for more than 80% of our exports.

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However, there are larger and more dynamic markets that remain under-exploited by Canadian firms. Asia, for instance, is our second largest international market, and yet only a minority of government officials and business people really appreciate the substantial gains that could be made by investing more in the area. This was the focus of Asia Pacific Foundation of Canada's 2003 Canada Asia Review, the foundation's annual report on Canada's trade and relations with Asia.

The Asia Pacific Foundation of Canada is a national non-profit organization that provides current and comprehensive research, analysis and information on Asia and on Canada's transpacific relations. The report examines the nature of Canada's relationship with China, Japan and India, as well as discussing the general trends of Canadian involvement in the whole region.

Though many are puzzled by the fact that more Canadians aren't investing in Asia, the report offers a few reasons for this fact. The primary one is that most of today's political and business leaders rose to prominence during an era in which the Canada-U.S. Free Trade Agreement was the key to the country's economic security. Because of this, many immersed themselves in that relationship, to the exclusion of other foreign interests.

At the same time, a competing vision of Canada's future was developing--what the foundation calls the Pacific Century--which viewed Asia as the engine of economic growth in this century. Various groups have bolstered this latter vision over the years: a few politicians, students graduating from Asian studies programs, and the large numbers of Asian immigrants who came to Canada in the 1980s and 1990s. However, the majority of businesses remained entrenched in their focus on the U.S. as our main source of trading growth.

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Perhaps the most interesting comment made in the report is that those who do invest in Asia continually increase their investment year over year. As it states, "every year around half [of the companies] report they intend to increase their investment during the following year and more than two-thirds say they will do so within the next five years."

The respondents to these surveys, as is pointed out in the report, are firms that already have a base in the region, so they have first-hand knowledge of the part of Asia in which they operate. This same group of companies, however, was also asked about their intentions to invest in other parts of the world. In the 2001 study, 23% said they intended to invest in the U.S. In 2002, that was down to just 13%.

So knowledge of Asia seems connected to a greater willingness to do business there. The challenge now is to develop that knowledge. The view of Asia has continued to be affected by the 1997 financial crisis, for instance. Despite the fact that most countries in the region have more than recovered from that event, Canada hasn't responded. In 1997, 10.8% of our trade was with Asia. In 2002, that number slipped to 10.3%--and that lower figure was supported by surging imports from Asia, rather than Canadian exports. Meanwhile, our share of major Asian import markets slipped for the seventh straight year, to just 1.08%--almost a third less than before 1997's financial crisis.

Ottawa has primarily been focused on extending NAFTA into Central and South America. And yet, as the report points out, the economic rationale for this is questionable. Canada's total trade in 2002 with Latin America (excluding Mexico) was $10.3 billion. To put this into perspective, however, that's little more than half of our trade with China. "It would take only a 14% gain in our trade with Asia to match a doubling of trade with Latin America," the report notes.

In January 2003, Foreign Affairs Minister Bill Graham opened up a new dialogue on Canada's foreign policy, to update the last review that was done in 1994. This is important and could lead to a revitalization of Canada's presence in the region. There are signs of progress already, of course, with the recent work on a free-trade deal with Singapore, but as the report notes, more has to be done to strengthen Canada's relationship with the heavy hitters of the region--China, India and Japan.

Meanwhile, it's certain that more needs to be done in Canada to encourage developing relationships in the area. The report points to enhancing the capacity of policymakers, analysts and scholars to monitor changes in the region, as well as investing in language training and area studies to build our strategic assets.

Many companies already have these sorts of assets within their ranks, of course, and they should look within themselves for skilled individuals who already have insights and ties to Asia. Although the U.S. will remain very important to us as a trading partner, companies can grow strategically by taking advantage of quickly developing markets like China. And once a foothold is made in the region, it will open up new and exciting opportunities for any company willing to take the time and effort.

This article only touches upon the very basic elements of Asia Pacific Foundation of Canada's annual review. For more information about the Foundation and the report visit www.asiapacific.ca.